The lending industry has tightened its lending practices since the days when
loans were given out like candy.
In 2005, loan underwriters who approve loans were paid on volume and would
often underwrite 6-8 loans a day. With today's tighter compliance policies,
underwriters can only underwrite 2-3 loans per day. In the past, a junior
underwriter could sign off on minor conditions, such as verifying employment,
etc. Now all conditions must go back to the main underwriter to be checked for
compliance. This creates a large log jam of files for the underwriter and thus,
causes delays in processing loans.
The final version of the 805 page "rule book" for qualifying mortgages was
released by the government last Thursday. Now, if a bank goes outside the
guidelines in processing a loan, the bank could forfeit their legal right to
foreclose on the house. This means if a bank "bends the rules" in creating a
loan, it is possible that a borrower could live in a house forever without ever
having to make another mortgage payment. Consequently, lenders are being
expecially careful in creating new home loans.
